Stop the Presses: CEO Confidence Declines

July 5, 2012

Stop the Presses! CEO Confidence Declines

The Conference Board Measure of CEO Confidence, which had improved in the first quarter of this year, decreased in the second quarter. The Measure now reads 47, down from 63 last quarter (a reading of more than 50 points reflects more positive than negative responses).

Lynn Franco, director of economic indicators at The Conference Board said: “CEOs began the year quite upbeat, but the lackluster performance of the economy so far, and expectations of more of the same, have clearly impacted attitudes. On a positive note, CEOs remain confident profits will continue to increase, driven primarily by market/demand growth.”

CEOs’ assessment of current economic conditions has turned considerably negative. Only 17 percent claim conditions have improved compared to six months ago, down significantly from 67 percent last quarter. A more negative attitude was also expressed regarding their appraisal of their own industries. Now, just 22 percent of business leaders say conditions have improved, compared with 42 percent in the first quarter of this year.

CEOs’ optimism about the short-term outlook has also declined from last quarter. Currently, only 20 percent of business leaders expect economic conditions to improve over the next six months, down from 59 percent in the first quarter. Expectations for their own industries have also turned pessimistic, with just 25 percent of CEOs anticipating an improvement in conditions in the months ahead, down from approximately 44 percent last quarter.

Regarding profit expectations over the next 12 months, 64 percent of CEOs expect increases. Executives in the durable and non-durable industries are the most optimistic, with 71 percent expecting profits to rise. About 62 percent of CEOs in the service industry expect an increase in profits.

Among CEOs who expect profits to rise, 46 percent say market/demand growth will be the primary driving force, while 29 percent cite cost reductions and an additional 15 percent say new technology will serve as the main source of improvement. The remaining 10 percent cite price increases as the primary driver.